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Second Quarter Bookings Increase 25% to $71 Million

 

Sunnyvale, CA. June 2, 2010 – Applied Signal Technology, Inc. (NASDAQ - APSG) announced operating results for the second quarter of fiscal 2010, which ended April 30, 2010. Revenues for the second quarter increased 9% to $58,163,000 compared to the year-ago period’s revenues of $53,500,000. This increase resulted from a combination of organic growth in the Company’s broadband communications business and the acquisition of Pyxis Engineering, which closed on September 1, 2009. The Company noted that its recent acquisition of Seismic Engineering closed on April 28, 2010 and therefore did not make a material contribution to the results for the second quarter.

 

Earnings per share during the second quarter were $0.24 per share compared to $0.31 per share in the year-ago second quarter. The year-over-year reduction in earnings resulted primarily from acquisition-related expenses. On a non-GAAP basis, excluding the transaction-related expenses associated primarily with the Pyxis and Seismic acquisitions, the Company reported earnings per share of $0.30. The year-over-year reduction in non-GAAP earnings resulted primarily from a higher tax rate versus the prior year’s quarter.

 

William Van Vleet, President and Chief Executive Officer of Applied Signal Technology, Inc., commented, “We are pleased to have executed well during the second quarter. In our core business, we responded to continued strong demand for our broadband communications systems, received significantly increased bookings and delivered a solid performance on the Next Generation ASA program.“

 

Mr. Van Vleet continued, “In addition to a healthy core business, our acquisition of Seismic Engineering reinforces our emerging position as a leading cybersecurity solutions provider. We believe that the platform we are building will distinguish itself through strong leadership, a large and capable engineering and analytical team, and cutting edge research and development. We have achieved a significant degree of scale in this business and are confident that we are now effectively positioned for a wide range of programs, both as an important partner and as a prime contractor.”

 

The Company’s operating income for the second quarter of fiscal 2010 was $5,458,000 compared to $6,455,000 in the second quarter of fiscal year 2009. On a non-GAAP basis, excluding acquisition-related expenses, operating income for the second quarter of fiscal 2010 was $6,696,000. A detailed reconciliation between GAAP and non-GAAP results is provided in a table following the consolidated statements of cash flows.

 

The Company reported significant strength in its order book, as new orders received during the second quarter increased by 25% to $70,628,000 compared to $56,454,000 of new orders received during the second quarter of fiscal year 2009. New orders for the first six months of fiscal year 2010 were $100,650,000 representing a 12% increase when compared to new orders of $89,575,000 for the same period of fiscal year 2009. The increase in new orders and revenues during the second quarter and year-to-date were primarily driven by demand for broadband communications development programs and network intelligence services.

 

Mr. Van Vleet concluded, “It remains our mission to further establish our leadership position in the rapidly developing intelligence, surveillance and reconnaissance (ISR) market. We are very excited to have quickly developed scale and expertise to address the still emerging cyber-security opportunity, a fast growing segment of the ISR market. We are dedicated to growing our company internally and will continue to search for strategic acquisitions to position the Company for sustained growth.”

 

Forward Looking Guidance

 

Applied Signal Technology anticipates fiscal 2010 revenues between $223 million and $233 million and operating income, measured on a GAAP basis, between $18 million and $21 million. These projections anticipate a fiscal 2010 effective tax rate of between 38-39% and assume the R&D tax credit is extended.

 

Applied Signal adopted the revised accounting standard for business combinations (ASC Topic 805) during fiscal year 2010 and therefore must expense, rather than capitalize the Seismic acquisition costs. Other acquisition related costs including the amortization of intangibles, retention bonuses and compensation expense related to a potential earn-out will also be expensed. In addition, Applied Signal continues to aggressively protect its intellectual property and anticipates increased litigation expenses this fiscal year.

 

Year to Date Results

 

Revenues for the first six months of fiscal 2010 were $106,243,000 compared to $98,884,000 during the first six months of fiscal 2009. Operating income for the first six months of fiscal 2010 was $10,652,000 compared to $12,103,000 in the same period of the prior year. Net income for the first six months of fiscal year 2010 was $6,435,000 or $0.48 per diluted share compared to the year-ago level of $7,589,000 or $0.58 per diluted share. Net income on a non-GAAP basis, excluding the impact of acquisition-related expenses, for the first six months of fiscal year 2010 was $7,351,000 or $0.55 per diluted share compared to the year-ago level of $7,616,000 or $0.58 per diluted share. A detailed reconciliation between GAAP and non-GAAP results is provided in a table following the consolidated statements of cash flows.

 

Use of Non-GAAP Financial Information

 

To help investors understand past financial performance and project future results, the Company supplements the financial results provided in accordance with generally accepted accounting principles, or on a GAAP basis, with certain non-GAAP financial measures. To supplement the consolidated financial results prepared under GAAP, the Company uses a non-GAAP conforming, or non-GAAP, measure of net loss that is GAAP net income and earnings per share adjusted to exclude certain costs related to completed acquisitions including the transaction costs, the amortization of intangibles, retention bonuses and compensation expense related to a potential earn-out. Non-GAAP net income and earnings per share gives an indication of the baseline performance before acquisition expenses that are considered by management to be outside the core operating results. These measures are not in accordance with, or an alternative for, GAAP and may be materially different from non-GAAP measures used by other companies. Non-GAAP net income is computed by adjusting GAAP net income for acquisition-related expenses. These non-GAAP results should be read only in conjunction with the consolidated financial statements prepared in accordance with GAAP. AST management regularly uses supplemental non-GAAP financial measures to internally understand, manage and evaluate the business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning and forecasting future periods. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of operations that, when viewed with GAAP results, provide a more complete understanding of factors and trends affecting the business. Management compensates for the limitations in the use of non-GAAP financial measures by relying on comparable GAAP financial measures and providing investors with a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures. Investors are encouraged to review the reconciliation of our non-GAAP financial measures to the comparable GAAP results attached to this earnings release.

Attached to this news release are condensed, consolidated statements of income, balance sheets, statements of cash flows and a reconciliation between net income on a GAAP basis and non-GAAP net income for the second quarter and first six months of fiscal year 2010 ended April 30, 2010.

 

Investor Conference Call

 

The Company will host a conference call on June 2, 2010 to discuss second quarter fiscal 2010 results. If you wish to participate in the conference call, please dial 1-877-407-8031 for domestic callers or 1-201-689-8031 for international callers on June 2, 2010 at 5:00 p.m. eastern time/2:00 p.m. pacific time. There is no pass code required. This call may be listened to simultaneously at the Web site www.InvestorCalendar.com. A rebroadcast of the call will be available upon its completion and will remain available for a limited time.

 

Applied Signal Technology, Inc. provides advanced intelligence, surveillance and reconnaissance (ISR) products, systems and services to enhance global security. For further information about Applied Signal Technology visit our website at www.appsig.com.

 

Except for historical information contained herein, matters discussed in this news release may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Statements relating to the expected future organic and new complementary growth opportunities and the order opportunities available in the rapidly developing intelligence, surveillance and reconnaissance (ISR) and cyber-security markets, the ability to executive additional strategic acquisitions and position the company for growth, as well as statements related to our forward-looking guidance for the fiscal year are forward-looking statements. The risks and uncertainties associated with these statements include the ability to achieve the anticipated benefits of the acquisitions, the ability to capture organic growth opportunities and to utilize the strategic advantages of a strong capital position; the ability to obtain new orders from procurers, including the U. S. Government when anticipated and to successfully perform and achieve profitability on such contracts; the ability to hire qualified staff as needed; and other risks detailed from time to time in the Company’s SEC reports including the latest Form 10-K filed for the fiscal year ended October 31, 2009. The Company assumes no obligation to update the information provided in this news release.

 

 

 

Applied Signal Technology, Inc.
Condensed Consolidated Statements of Income
(in thousands except per share data)

 

	Three Months Ended		Six Months Ended
	April 30, 2010	May 1, 2009	April 30, 2010	May 1, 2009
Revenues from contracts	$56,219	$51,618	$102,832	$95,305
Revenues from royalties	1,944     -----------	1,882     -----------	3,411     -----------	3,579     -----------
Total revenues	58,163	53,500	106,243	98,884
Operating expenses:
Contract costs	40,850	37,489	74,850	69,020
Research and development	4,046	3,797	7,093	6,872
General and administrative	7,809     -----------	5,759     -----------	13,648     -----------	10,889     -----------
Total operating expenses	52,705     -----------	47,045     -----------	95,591     -----------	86,781     -----------
Operating income	5,458	6,455	10,652	12,103
Interest income/(expense), net	(34)    --------	69     --------	(37)    --------	181     --------
Income before provision for income taxes	5,424	6,524	10,615	12,284
Provision for income taxes	2,128     -----------	2,450     -----------	4,180     -----------	4,695     -----------
Net income	$3,296     ======	$4,074     ======	$6,435     ======	$7,589     ======
Net income per share – basic	$0.25	$0.31	$0.48	$0.58
Average shares – basic	13,091	12,852	13,079	12,803
Net income per share – diluted	$0.24	$0.31	$0.48	$0.58
Average shares – diluted	13,230	13,033	13,222	12,978

 

 

 

Applied Signal Technology, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

 

	April 30, 2010	October 31, 2009
Assets
Current assets:
Cash and cash equivalents	$9,738	$4,102
Short term investments	10,010          --------------	43,454          --------------
Cash, cash equivalents, and short term investments	19,748	47,556
Accounts receivable	49,739	47,063
Inventory	11,698	8,378
Receivable – Pyxis acquisition related	—	1,093
Other current assets	11,218          --------------	9,424          --------------
Total current assets	92,403	113,514
Property and equipment, at cost	72,908	70,400
Accumulated depreciation and amortization	(57,738)          --------------	(55,405)          --------------
Net property and equipment	15,170	14,995
Goodwill	54,682	33,158
Intangible assets, net	5,349	1,904
Long-term deferred tax asset, net	4,308	4,196
Long term investment	1,062	2,129
Other assets	1,593          --------------	1,104          --------------
Total assets	$174,567          =======	$171,000          =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable, accrued payroll and benefits	$17,967	$22,158
Notes payable	1,429	1,429
Income taxes payable	2,135	444
Other accrued liabilities	4,343          --------------	2,298          --------------
Total current liabilities	25,874	26,329
Long-term liabilities:
Long-term notes payable	1,786	2,500
Other long-term liabilities	3,078          --------------	3,146          --------------
Total long-term liabilities	$4,864	$5,646
Shareholders' equity	143,829          --------------	139,025          --------------
Total liabilities and shareholders' equity	$174,567          =======	$171,000          =======

 

 

 

Applied Signal Technology, Inc.
Condensed Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
(in thousands)

 

	Six Months Ended
	2010	2009
Operating activities:
Net Income	$6,435	$7,589
Adjustments to reconcile net income to net cash     provided by (used in) operating activities:
Depreciation and amortization	3,541	3,056
Stock-based compensation	1,049	1,068
Excess tax benefits from stock-based payment arrangements	(74)	(251)
Changes in:
Accounts receivable	735	(4,486)
Inventory, prepaid expenses, and other assets	(5,517)	(2,281)
Accounts payable, taxes payable and accrued liabilities	(3,450)       -----------	(2,413)       -----------
Net cash provided by operating activities	2,719	2,282
Investing activities:
Cash paid for business acquired, net	(24,327)	—
Cash received from Pyxis's escrow account, net	673	—
Purchase of available-for-sale securities	(39,134)	(28,801)
Maturity of available-for-sale securities	73,108	31,285
Additions to property and equipment	(2,812)       -----------	(2,684)       -----------
Net cash provided by (used in) investing activities	7,508	(200)
Financing Activities:
Issuance of common stock	772	2,331
Shares repurchased for tax withholding of vested restricted stock awards	(168)	(127)
Excess tax benefits from stock-based payment arrangements	74	251
Term loans	(1,954)	(834)
Dividends paid	(3,315)       -----------	(3,227)       -----------
Net cash (used in) financing activities	(4,591)	(1,606)
Net increase (decrease) in cash and cash equivalents	5,636	476
Cash and cash equivalents, beginning of period	4,102        -----------	4,668        -----------
Cash and cash equivalents, end of period	$9,738        ======	$5,144        ======
Supplemental disclosure of cash flow information:
Interest paid	108	149
Income taxes paid	2,265	4,733

 

 

 

Applied Signal Technology, Inc.
GAAP to Non-GAAP Reconciliation
For the Periods Ended April 30,2010, and May 1, 2009
(in thousands except per share data)

 

		Three Months Ended		Six Months Ended
		April 30, 2010	May 1, 2009	April 30, 2010	May 1, 2009
General and Administrative Operating Expenses
GAAP general and administrative expenses		$7,809	$5,759	$13,648	$10,889
Non-GAAP acquisition expenses:
Transaction costs	a	(901)	(7)	(911)	(8)
Amortization of intangibles	b	(192)	(18)	(385)	(36)
Compensation expense	c	(145)    ----------	0     ----------	(296)    ----------	0     ----------
Total non-GAAP acquisition expenses		(1,238)	(25)	(1,592)	(44)
Non-GAAP general and administrative expenses		6,571     ======	5,734     ======	12,056     ======	10,845     ======
Operating Expenses
GAAP operating expenses		52,705	47,045	95,591	86,781
Non-GAAP acquisition expenses:
Transaction costs	a	(901)	(7)	(911)	(8)
Amortization of intangibles	b	(192)	(18)	(385)	(36)
Compensation expense	c	(145)    ----------	0     ----------	(296)    ----------	0     ----------
Total non-GAAP acquisition expenses		(1,238)	(25)	(1,592)	(44)
Non-GAAP operating expenses		51,467     ======	47,020     ======	93,999     ======	86,737     ======
Operating Income
GAAP operating income		5,458	6,455	10,652	12,103
Non-GAAP acquisition expenses:
Transaction costs	a	901	7	911	8
Amortization of intangibles	b	192	18	385	36
Compensation expense	c	145     ----------	0     ----------	296     ----------	0     ----------
Total non-GAAP acquisition expenses		1,238	25	1,592	44
Non-GAAP operating income		6,696     ======	6,480     ======	12,244     ======	12,147     ======
Net Income
GAAP net income		3,296	4,074	6,435	7,589
Non-GAAP acquisition expenses:
Transaction costs	a	901	7	911	8
Amortization of intangibles	b	192	18	385	36
Compensation expense	c	145	0	296	0
Income tax effect on     non-GAAP adjustments	d	(523)    ----------	(9)    ----------	(676)    ----------	(17)    ----------
Total non-GAAP acquisition expenses		715	16	916	27
Non-GAAP net income		$4,011     ======	$4,090     ======	$7,351     ======	$7,616     ======
Non-GAAP net income per share – basic		$0.30	$0.31	$0.55	$0.59
Average shares – basic		13,091	12,852	13,079	12,803
Non-GAAP net income per share – diluted		$0.30	$0.31	$0.55	$0.58
Average shares – diluted		13,230	13,033	13,222	12,978

a.	Transaction Costs. Transaction costs are primarily legal, due diligence, and other consulting costs that are incurred directly as a result of the acquisition activities.
b.	Amortization of intangibles. Amortization of intangibles arise from current and prior acquisitions and is non-cash in nature.
c.	Compensation Expense. Compensation expense includes the retention bonuses payable to the employees of the acquired Pyxis business.
d.	Income tax effect on non-GAAP adjustments. This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP adjustments on non-GAAP net income.